Buy To Let Mortgages

Whether you’re an experienced investor or a new landlord hoping to take their first step onto the property letting ladder, buy-to-let mortgages is the type of mortgage you will need to be able to buy a property to rent it out, unless of course you have enough money to buy one with cash!

That being said, buy-to-let mortgage rates differ from those of a traditional residential mortgage, so it’s important to know whether you qualify for one before committing to the process.

What Is A Buy To Let Mortgage?

Buy-to-let mortgages are a type of mortgage for people who have the specific intention of renting a property out. These can include both experienced landlords with numerous properties, to first-time landlords looking to enter the market.

With that in mind, if you intend to rent out a property, you cannot use a traditional residential mortgage to fund the purchase. Hence, a buy-to-let is the preferred option for lenders and landlords alike.

How do buy to let mortgages differ from residential mortgages?

As a general rule, buy-to-let mortgages differ from residential mortgages in several ways. As stated above, the purpose of a buy-to-let is clearly different from that of a Residential or Standard mortgage.

Primarily, the goal of a buy-to-let is to secure funding to purchase a property that the owner will then let to others rather than utilise it for personal means.

As a result, buy-to-let mortgages usually require a larger deposit to be submitted and involve a higher interest rate. This is because the intended property is likely to spend varying periods without tenancy. Lenders require an extra layer of financial security should payment deferral occur.

Finally, landlords taking on a buy-to-let mortgage can also choose to make monthly payments that only cover the interest i.e., Interest Only. In such circumstances, the landlord must pay the final, full mortgage amount at the end of an agreed term period. For example, if you took a mortgage of £100,000 on Interest Only over 25 years, you would still owe £100,000 after 25 years because with an Interest Only Mortgage you only pay the interest on the money borrowed not the capital.

What is the criteria for a buy to let mortgage?

What makes you eligible for a buy-to-let mortgage?

There are several criteria around this but and to list them all now would be massive and very time consuming but below is a list of some bits of criteria from some lenders:

  • To be considered for a buy-to-let, some lenders ask you to own your own property outright or have a mortgage on it. This is not a requirement for all lenders.
  • You must also be able to demonstrate a good credit score.
  • You can be a first-time buyer and buy a buy to let.
  • Buy-to-let applicants usually need to be a minimum of 21 years of age. However, maximum age limits may vary as a rule, and lenders prefer the final mortgage term (when you will pay back the amount in full) to pass before your 70-75th birthday. Some lenders will even allow you to take the mortgage way past your 90th birthday and have no upper age limit.

Related Links

  • Contractor Mortgages

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  • Moving Home Advice

  • Houses of multiple occupation mortgages (HMOs)

  • Buy To Let Mortgages

  • First Time Buyer Mortgages

What are the interest rates for a buy-to-let mortgage?

Rates of interest for a buy-to-let mortgage are higher than for those attached to traditional, residential mortgages.

The interest rate, fees you pay and which lender you go to will all depend on the rate you pay.

Fundamentally there are various types of buy-to-let mortgage rates: Fixed rate, variable and tracker rates although some other rates are available. You’ll find more information explaining the differences between these plans below.

Buy-to-let mortgage types:

Fixed-rate mortgage

Fixed-rate mortgages involve a fixed repayment over an agreed period. Therein, the longer the repayment period, the higher the interest you’ll be required to pay.

It’s worth noting that after the fixed-rate interest period elapses (usually between 2-5 years), your interest rate will return to a standard variable rate unless you arrange otherwise.

Variable-rate mortgages

A variable rate mortgage means that your rate of interest, and thus monthly payments, will rise and fall as rates change.

The variable rate is set by the mortgage lender you are borrowing the money from. They can increase or decrease rates as they see fit.

Discount variable mortgage

Discount variable mortgages centre around the lender’s standard mortgage rates and apply a set discount off of that.

As such, if your lender’s rate changes, your rate of interest will change with it. However, you’ll still claim the same discount from the new rate.

Tracker mortgage

Tracker rates are rates which track the Bank of England Base Rate. You are normally charged a small percentage above that rate. This rate can go up and down as and when the Bank of England Base rate increases or decreases and therefore so does your monthly payment.

Want to know more?

For more details, call our Mortgage Saving Experts today.

Can I change my mortgage to a buy-to-let?

Generally, yes you can.

For example, if you own a residential property, for which you pay a standard mortgage, and then purchase a second property that you intend to move into, you might qualify to switch. This would involve doing a Let to Buy. All this means is you remortgage your current residential mortgage into a buy to let with another lender. The only drawback you have is you must do this at the same time as purchasing your new property because your Buy to let lender will not allow you to live in the property as it breaks the terms and conditions of the mortgage contract.

The other option you have is write to your existing lender to ask them for “Permission to Let”. The lender will then know you intend to let the property, but they must give you permission to let it before you do.

If you’d like to know more about the transfer of residential to buy-to-let, and indeed more, feel free to get in touch. We’d love to speak to you.

Is a buy-to-let mortgage cheaper than a standard mortgage?

No, they’re not. Fundamentally, buy-to-let mortgages and standard mortgages are designed for entirely different circumstances and thus can’t truly be compared.

Furthermore, as buy-to-let mortgages are arranged regarding prospective rental income from the intended property, they have higher interest rates and require a larger deposit.

Can I afford a buy-to-let mortgage: what to consider?

Mortgage costs

Whether you can afford a buy-to-let mortgage depends on the price of the property you want to purchase and your income.

As stated previously, to secure a buy-to-let, you need to provide a deposit, and this is generally expected to be 25% of the full property value.

The amount of loan you can get is purely based on the amount of rental income you get from the property as confirmed by a surveyor, however, the lender you can use sometimes asks for a minimum income requirement, especially if you are a first-time buyer or a first-time landlord. If you have owned and rented a buy to let property for 6 months or more, you will not be classed as a first time landlord and the criteria then changes and most buy to let mortgage lenders do not have the requirement for a minimum income.

Importantly, however, you’ll also need to consider whether you can cover the additional fees that come with being a landlord.

You’ll find an explanation of these in the “What additional fees come with being a landlord?” section below.

Rental income

Rental income, i.e., the amount of rent your property will generate, must also be considered when considering if you can afford a buy-to-let mortgage.

Rental income directly affects the amount you can borrow for your buy-to-let, as it helps your lender determine your loan value and what payments you can afford to maintain.

Crucially, a lender will have an idea of the rental income they think you’re likely to generate, but it’s a good idea to do a bit of research yourself to ensure you get the best deal and to see if the buy to let mortgage you need is feasible.

Feeling unsure? That’s what we’re here for! Pick up the phone and get in touch!

Unlet or Void periods

Unlet or void periods are the periods of time that your buy-to-let property doesn’t have a tenant in and thus will generate no income and you will still have to make the monthly mortgage payments.

Your lender will require you to evidence the ability to cover your payments during spells without an occupant. Thus, you’ll need to ensure you have sufficient savings and/or external income to cover your mortgage payments before applying.

Want to know more?

Get in touch with of our mortgage saving experts today.

What additional fees come with being a landlord?

Letting agency fees

As the name suggests, your letting agency will charge fees to cover the cost of managing your property. Typically, these amount to around 10% of monthly rent. However, they are subjective to your negotiation so make sure you get a god price. You could even self-manage the property and not use a letting agent but if you are a first-time landlord, I would suggest using one as you do not want to be called up at 2pm on a Sunday morning by your tenant saying there’s a leak in the property which needs sorting immediately.

Stamp duty

The Stamp Duty Land Tax is a fee you’re required to pay when you purchase a property over a certain price threshold. In the UK, this threshold currently rests at £125,000 for non-residential land and properties. At present (2021) there is an extra 3% payable on the full purchase price of the property irrelevant of the price of the property.

Thus, if your buy-to-let property price exceeds £125,000, you’ll be required to pay the normal stamp duty levy plus an extra 3% of the full purchase price of the property. Obviously, you do not have to pay stamp duty when you remortgage.

Maintenance costs

As you’ll have learned from your residential property, tumble driers break, damp rises and central heating pipes freeze. Unfortunately, as a landlord, you are responsible for such repairs.

It’s, therefore, good practice to make sure your account for the cost of general maintenance when applying for your loan and deciding on rent fees. There are insurance policies you can get to cover certain things such as boiler break down or non-payment of rent etc.

Health and Safety rules

As a landlord, once you buy a property to rent, the onus is on you to make sure it’s a safe environment for prospective tenants.

As such, your property must meet the latest market regulations and standards, a process that might require maintenance and financial input before you can turn a profit.

Some things you will need to get are an EPC (this is normally done prior to you buying the property and you will need things like a gas safe certificate which must be done annually. A good letting agent if you use one will be able to advise you of what you need and keep track of it for you and sort it to your cost if they are managing the property for you.

For more information, get in touch, and our team of experts will talk you through the process.

Want to know more?

For more details, call our Mortgage Saving Experts today.

We can help you arrange a bespoke buy to let solution that is tailored to you.

How can I compare buy-to-let mortgages?

Here at Mortgage Savings Experts, we can help you compare buy-to-let mortgages to find the right deal for you.

With that in mind, you’ll find all the tools you need to compare mortgages on our website, so head on over, select “get a mortgage quote” on the home page and search buy-to-let mortgages and go from there.

That being said, if you’d like to speak to one of our team directly, you can arrange a call back, call us immediately or e-mail us by filling in a form.

An experienced mortgage advisor will reply to you as soon as possible and guide you through the best buy-to-let mortgages available for you and your circumstances.

You’ll find all our contact details on our “Get In Touch” web page.

Call our expert team today to find out more.

If you would prefer to speak to a person directly, then feel free to pick up the phone and call us today at 01273 738072. Our friendly and professional team of mortgage advisors are more than happy to help you with any queries you may have.

Buy To Let Q&As

What is the difference between a buy-to-let mortgage and a residential mortgage?

The difference between a buy-to-let mortgage and a residential mortgage is that a buy-to-let is purchased with the specific intention of letting out a property rather than for personal habitation. Similarly, buy-to-let mortgages have higher interest rates, require a larger deposit. So, if you want to buy a property to rent, a buy-to-let is the right mortgage for you.

Should I get a fixed or variable interest rate?

Whether you choose, a fixed or variable interest rate is subjective to you and your circumstance. A fixed rate ensures that your monthly payments will remain the same for an agreed period of time. For example, lenders usually agree to a fixed-term period between 2 to 5 years for buy-to-let mortgages. Once this period has elapsed, your rate of interest will automatically switch to your lender's standard variable rate unless you agree to refix or change terms or even remortgage somewhere else. If you use us to buy your by to let or remortgage we will make a note in our diary to contact, you four months before your rate finishes to make sure you do not switch to the lenders variable rate which is normally a much higher rate than the rate you started on or the rate which you can switch to. However, should you elect to take on a variable interest rate, you can expect your monthly payments to fluctuate and be much higher to start with. Therein, if you have a tracker mortgage, your rate will follow the Bank of England base rate, whereas a variable rate mortgage has its interest rate determined by the lender and thus can change at any time.

Why can’t I get a residential mortgage and rent out the property?

You can't get a residential mortgage and rent out the property because, by definition, a residential mortgage requires you to live in the property for which the loan has been arranged. Thus, if you don't intend to live in a property, you won't qualify to receive a residential mortgage and will need a buy to let mortgage.

What deposit do I need for a buy-to-let mortgage?

Deposits required for a buy to let mortgage can be as low as 20% of the overall purchase price or value of the property. However, such terms are only available from a few lenders. If you can stretch to a 25% deposit, then the number of lenders you can use opens up the whole market. Finally, first-time buy-to-let buyers are required to provide a 25% deposit.

What are the interest rates for a buy-to-let mortgage?

There is no set interest rate for a buy-to-let mortgage, the rates are higher than residential mortgages. As a result, the rate you're offered is dependent on the property you're hoping to purchase. Interest rates also depend on the type of buy-to-let mortgage you would like to receive. Fixed rates will see your interest rate frozen for an agreed period of time. In contrast, variable interest allows your rate to fluctuate as and when the lender sees fit and tracker rates fluctuate higher or lower in line with the Bank of England base rate.

Should I get a repayment or interest-only buy-to-let mortgage?

Whether you decide to get a repayment or interest-only buy-to-let mortgage should be determined by your financial circumstance and personal preference. Thus, you must consider which option is more financially beneficial for you? Entering a repayment buy-to-let contract means your monthly payments will be higher. However, your mortgage will be guaranteed to be repaid at the end of the term of the mortgage. An interest-only buy-to-let will allow you to pay a smaller monthly payment (just the interest on the money you have borrowed) If you want a monthly income from the property, then Interest Only is best but you do repay the amount borrowed. If you don’t want a monthly income from the property and want the mortgage to be repaid at the end of the mortgage term, then repayment would be best. If you're unsure, we recommend speaking to one of our experts directly. They'll help you determine the best plan of action for you and your purchase.

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